Why General Electric Earnings Are Sending Shares Higher

GE turns in a solid quarter revealing growth around the world. Can the good times last?

In the face of tapering growth in economies around the world, General Electric(NYSE:GE) keeps delivering solid performances. The third quarter of 2013 was no exception. Once again, "The General" stepped up to the plate and delivered a reliable base hit, while setting the stage for a potential home run in the final quarter of the year.

View from the topOn the top line, GE almost never posts eye-popping growth, but the $150 billion industrial giant is consistent if nothing else. GE arrived just shy of analyst's expectations, raking in revenue $35.7 billion versus a consensus estimate of $35.9 billion. Against last year's third quarter, this was a 0.1% decline, which is about where management expected to be at this time.

GE Capital, as expected, weighed down the company's top line, posting a 5% decline year over year. Management has emphasized the importance of shrinking GE Capital every quarter, a welcomed objective for shareholders who watched this unit grow unwieldy during the recent financial crisis. For perspective, GE Capital accounted for 31% of GE's overall revenue in 2012, down from 38% in 2007.

For GE, the Industrials businesses are where the rubber meets the road. In this category, the company posted 3% top-line growth overall, with a 1% boost in organic growth. The latter leaves something to be desired, as the company aims for 2%-6% organic growth at year's end. Similar to last year, GE will need to cover significant ground in the fourth quarter to deliver in this category.

How the rest shakes outThe key objective for management in 2013 is to deliver double-digit-profit growth in its industrial businesses at the end of the year. In short, that's what the market expects and that's what will make or break the company's year. Yes, there are other targets that matter, like tightening the reins on GE Capital and returning cash to shareholders, but the industrial growth is where investors will hold management's feet to the fire. So far, GE's on track to meet those expectations, as the consolidated industrial businesses posted 11% growth in segment profits year over year.

As the chart above reveals, every industrial business hummed along in the most recent quarter, save for energy management, which posted a 57% decline in profits. Leadership pointed to "disappointing" operations in this segment where revenues dipped 3% largely driven by a 27% decline in the digital energy business.

Otherwise, there were no significant surprises in GE's third-quarter report. No doubt a few media outlets will report on the overall "boring" quarter, but for investors who have watched shares climb 20% year to date, there's nothing boring about it.

Still, GE's stock trails the overall performance of its industrial peer Honeywell(NYSE:HON), which has climbed 33% in 2013. Honeywell, which reported earnings growth of 4.2% today, provided a slightly weaker revenue outlook for the upcoming fourth quarter, which appeared to place a wet towel on its stock as of this afternoon. But Honeywell remains optimistic about earnings and boosted guidance in this department by $0.05. At least for the time being, the manufacturing sector's experiencing a bit of a comeback in the U.S.

What you need to know about GE's futureWhile certain businesses turned in a lackluster performance in the third quarter, GE proved resilient on the whole. The company reported growth around the world and boosted its backlog of orders from $223 billion to $229 billion. Orders increased 19% versus last year, which puts GE in a solid position to continue driving top- and bottom-line gains in future quarters. Stepping up to the plate in the fourth quarter, GE looks positioned to clear the bases. All that management has to do is execute.

Author

Isaac covers the companies that constantly push the world forward, from the engines of innovation like GE and Google to the rule breakers like Chipotle and Whole Foods. He admires the leaders that embody the philosophy of Conscious Capitalism.
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